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Business News/ Markets / Stock Markets/  Stock market spooked as US Treasury yields hit four-week peak; 5 key reasons driving bond yields higher
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Stock market spooked as US Treasury yields hit four-week peak; 5 key reasons driving bond yields higher

The spike in US Treasury yields have also spooked the risky assets globally. The US stock market witnessed sharp declines, with the Asian and Indian equity markets reflating similar moves over the past few sessions.

The benchmark US 10-year yields settled at 4.623% on Wednesday, up from 4.471% at the end of last weekPremium
The benchmark US 10-year yields settled at 4.623% on Wednesday, up from 4.471% at the end of last week

US Treasury yields spiked to four-week highs, with the two-year / 10-year yield curve reducing its inversion to its narrowest gap in two weeks, reflecting worries about higher inflation and growth.

The benchmark US 10-year yields settled at 4.623% on Wednesday, up from 4.471% at the end of last week. In just two weeks, the 10-year US yield has jumped 30 basis points. US two-year to 30-year yields also hit their highest levels since early May.

Rising uncertainty about the interest rate cuts by the US Federal Reserve amid upbeat economic data have been driving bond yields to their highest level in a month.

Also Read: Stock market crash before Lok Sabha Election Result: Why Sensex fell 1200 points in three days? Explained with 5 reasons

The spike in US Treasury yields have also spooked the risky assets globally. The US stock market witnessed sharp declines, with the Asian and Indian equity markets reflating similar moves over the past few sessions.

Here are key factors driving the US Treasury yields higher:

Weak debt auction

Treasury yields spiked after another weak debt auction on Wednesday as investors showed relatively little appetite, demanding higher yields than the market rate. The sale of $44 billion in US seven-year debt resulted in a high yield of 4.65%, higher than the expected rate at the bid deadline, suggesting that investors sought a premium to purchase the note, Reuters reported.

The bid-to-cover ratio, a measure of demand, was 2.43, lower than last month’s 2.48 and the average of 2.55.

The seven-year note sale followed equally lackluster auctions of US two-year and five-year notes on Tuesday, raising concerns about future demand for government debt.

Also Read: Wall Street today: US stocks decline as Fed rate cut worries push yields higher

Rate cut worries

Weak debt auction, strong economic data and hawkish comments from US Fed officials prompted a further reduction in bets of rate cuts in the world's largest economy.

Bets of a rate cut in September has eased to 47%, down from 58% in the previous week, while the futures market is pricing only around 31 basis points (bps) of rate cuts this year, compared with over 50 bps earlier in the month, according to CME FedWatch Tool.

The minutes from the Federal Reserve’s latest meeting, released last week, also showed uncertainty among policymakers about the timing to ease monetary policy.

Also Read: Bond yields may fall to 6.50% by Q4FY25, says analyst. Here’s what fixed income market investors should do

Hawkish US Fed Officials

Comments from Minneapolis Federal Reserve Bank President Neel Kashkari further raised concerns over timing of rate cuts, boosting yields.

In an interview, Kashkari said that the Fed should wait for significant progress on inflation before cutting interest rates, and he would need “many more months of positive inflation data" for confidence to turn towards easing.

Beige Book Survey

A US Federal Reserve survey known as the Beige Book showed economic activity expanded at a “slight or modest" pace across most regions from early April through mid-May but firms grew more downbeat about the future amid weakening consumer demand while inflation continued to increase at a modest pace.

Also Read: Lok Sabha Elections 2024: How has stock market performed after past elections and what to expect after June 4?

US Consumer Confidence

US consumer confidence unexpectedly improved in May after deteriorating for three straight months. The consumer confidence index, which measures both Americans' assessment of current economic conditions and their outlook for the next six months, rose to 102.0 this month from an upwardly revised 97.5 in April, Conference Board said. Economists polled by Reuters had forecast the index falling to 95.9 from the previously reported 97.0.

Investors now await the release of the US Core Personal Consumption Expenditures (PCE) price index report - the Federal Reserve’s preferred measure of inflation - on Friday and the May labor report a week later for further cues on the Fed’s next policy move.

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(With inputs from Reuters)

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Published: 30 May 2024, 11:25 AM IST
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